Market corrections should not be seen as a negative phase, but as an opportunity for long-term investors to build wealth, Kotak Mutual Fund Managing Director Nilesh Shah said.

Speaking in a discussion on wealth creation with Zee Business Managing Editor Anil Singhvi, Shah said volatility and downturns are a natural part of equity markets, and investors must be mentally prepared for such phases.

“Markets move in cycles like the full moon and the new moon. We know when those happen in nature, but in markets, no one can predict when rallies or corrections will come. So investors must be mentally ready for volatility and downward corrections,” he said.

First-time investors facing real correction

He said new-age and first-time investors, especially those who entered markets after 2020, are witnessing a meaningful correction for the first time and may feel uncertain about what to do.

Drawing from his experience across multiple market downturns, including 1992, 2000, 2008, 2020 and now 2026, Shah advised investors to focus on their risk profile before making decisions.

“First, understand yourself. Whether you are a risk taker, moderate or conservative investor. Your strategy should match your risk-taking ability,” he said.

He said investors often get confused between trading and investing, and stressed the need to clearly separate both approaches.

“If you are trading, follow trading rules like stop losses. If you are investing, think long term and average wisely. Do not convert trading losses into investments,” Shah said.

He cautioned against the idea of quick money, especially among younger investors. “Fast wealth creation is a concept investors should forget. We have seen that in trading, speculation or Ponzi schemes, people often lose money. Quick gains may look attractive, but they carry high risk,” he said.

Shah said discipline plays a key role in trading as well as investing. “Bet big when you are confident and do nothing when you are not. If you keep trading without conviction, losses are likely,” he said.

On long-term investing, he advised investors to be clear about the reason behind buying a stock. “You should be able to write down five reasons for your investment. That clarity is more important than reading long reports,” he said.

Shah also warned investors against blindly following friends or social media influencers for investment decisions. “No one advertises their losses. Some influencers earn more from teaching trading than from trading itself. Investors must check track record, understand the advice and verify credibility before following anyone,” he said.

He said investors should differentiate between luck and skill while evaluating others’ success. “Some people make money due to luck, but that does not sustain. Follow those who have skill and consistency,” he added.

On portfolio strategy, Shah emphasised the importance of asset allocation in wealth creation. “90 per cent of wealth comes from asset allocation and only 10 per cent from stock selection,” he said.

He suggested that investors divide their savings between long-term investments and high-risk activities like trading. “Allocate 80-90 per cent of savings to long-term investments based on asset allocation. The remaining 10-20 per cent can be used for trading or high-risk ideas,” he said.

Explaining a balanced approach, Shah said a multi-asset portfolio can include equities, gold and debt in defined proportions. “For example, 60 per cent in equity, 20 per cent in gold and silver, and 20 per cent in debt. The allocation can vary slightly, but should not be extreme, like zero or 100 per cent in any asset,” he said.

On short-term goals, Shah cautioned against relying on trading income for expenses. “Trading has no certainty. Even the best traders are right only about half the time. Income and spending should be treated separately,” he said.

He cited regulatory data to highlight risks in derivatives trading. “Most retail participants in futures and options lose money. Yet everyone believes they will make profits, which is mathematically not possible,” he said.

Shah reiterated that systematic investment plans (SIPs) remain one of the most effective ways to build long-term wealth. “Disciplined investing is the only reliable approach to financial security. There is no instant gratification in SIPs, but steady investing leads to wealth creation over time,” he said.

He said financial security enables individuals to enjoy life better, but requires patience and consistency. “Small, consistent steps lead to big outcomes. Just like learning or climbing a mountain, wealth is also built gradually,” he said.

Addressing concerns of young investors aiming for early retirement, Shah said financial discipline is key. “Everyone wants to enjoy life early, but financial security is necessary for that. Without discipline in investing, it is difficult to achieve long-term goals,” he said.

Using a metaphor, Shah said investors should focus equally on learning and execution. “In markets, knowledge is critical. You must learn both how to enter and how to exit. Continuous learning is essential for success,” he said.

He added that investors today have access to multiple sources of information and should use them wisely. “There are many platforms, shows and resources available. Investors should use them to learn and make informed decisions,” he said.

Shah said market downturns, though uncomfortable, play an important role in long-term wealth creation. “Just like a nest is built using twigs collected during difficult times, wealth is created by using market corrections wisely,” he said.